The Coming Obamacare Bailout

Peter Ferrara is a Heartland senior fellow for entitlement and budget policy, a senior fellow at the Social Security Institute, and the general counsel of the American Civil Rights Union.

He served in the White House Office of Policy Development under President Reagan, and as Associate Deputy Attorney General of the United States under the first President Bush. He is a graduate of Harvard College and Harvard Law School. He is author of The Obamacare Disaster, from the Heartland Institute, and President Obama's Tax Piracy, and his latest book: America's Ticking Bankruptcy Bomb: How the Looming Debt Crisis Threatens the American Dream-and How We Can Turn the Tide Before It's Too Late.

Think back to the fall of 2008. Congress was asked to pass a $700 billion taxpayer bailout for Wall Street. We were told it had to be passed, or else the economy would collapse, perhaps into another Great Depression.

House conservatives voted it down. The stock market fell hundreds of points in response. In the ensuing panic, Congress went along and passed the bailout.

That bailout, and the insane, nearly $1 trillion “stimulus” bill passed just a few months later as Obama’s first act, gave birth to the Tea Party revolution that gave Republicans a 63-seat landslide in the House in the 2010 elections. Voters supported that to stop the run on taxpayer funds.

Next on the horizon is an Obamacare “death spiral” for the private health insurance industry. Taxpayers will now be told a new bailout of hundreds of billions for the private health insurers must be passed, or else private health insurance will go out of business under Obamacare. That would leave the government in complete control of American health care, especially as he who pays the piper calls the tune.

It is called “single payer” by advocates of government-run health care. In plain English, “single payer” means “government monopoly” over health care, more commonly known as “socialized medicine.” That means the government decides who gets what health care, or ultimately, who lives and who dies. For those who think the government is God, such health care socialism is long overdue.

Meaning — spiraling decline in the quality of American health care, the end of investment in new, breakthrough medicine, Sarah Palin’s death panels.

The Obamacare Death Spiral Begins President Obama sold the idea of Obamacare to its most credulous supporters on the promise that it would mean universal health insurance, with no uninsured. That is what appealed about it to the Left, and to the simple-minded true believers in Obama. But even the Washington establishment Congressional Budget Office scored Obamacare as still leaving 30 million uninsured 10 years after implementation!

But the reality is even worse than that. Because the effect of Obamacare so far has been to increase the number of uninsured, rather than reduce it. Consider recent news reports from around the country:

• Florida Blue terminates 300,000 policies, about 80 percent of its individual policies in the state.

• Kaiser Permanente in California terminates 160,000 policies, about half of its individual policies in the state.

• Insurer Highmark in Pittsburgh sends out termination notices for about 20% of its individual policies.

The Weekly Standard summarized the impact last month as likely to total 16 million terminated individual policies, out of a total individual market of 19 million policies. So more than 80% of the health insurance policies individuals buy directly by themselves would be terminated as a result of Obamacare.

But the great majority of health insurance pre-Obamacare came through employer-provided health coverage. The Obamacare wrecking ball, however, is terminating health insurance there too. CBO scored Obamacare as causing as many as 20 million workers to lose their employer-provided health insurance. Former CBO Director Douglas Holtz-Eakin estimated double that, or 40 million, in a study for the American Action Forum.

But even that does not match what Obama knew would happen back in 2010 when Obamacare was passed. Section 1251 of the Obamacare legislation includes the “grandfather” provision that is supposed to allow people to keep their current health plan if they like it. But on June 17, 2010, Obama’s own Department of Health and Human Services (HHS) published a notice in the Federal Register saying, “The Department’s mid-range estimate is that 66 percent of small employer plans and 45 percent of large employer plans will relinquish their grandfather status by the end of 2013.” That adds up to 51 percent of employer-provided health insurance plans that would become illegal and terminated under Obamacare. Counting both the employer provided and individual health insurance markets, Avik Roy of Forbes calculates that means that altogether 93 million Americans will lose their health insurance under Obamacare.

President Obama promised over and over that if you like your health insurance you can keep it, in selling his Obamacare snake oil. The ringing declaration was, “If you like your health plan, you will be able to keep your health plan. Period. Nobody will be able to take that away from you.” But now Obama derides the millions and millions of terminated policies as substandard in not meeting the Obamacare regulatory requirements. In other words, his much repeated promise to the American people is now revised to proclaim: If Obama likes your health plan you can keep it. What a sad egomaniac for suckers not only to elect but reelect as President.

Moreover, now we know that Obama knew that this pledge to the American people, which he has continued to repeat over and over since 2010, was false from the beginning.

The Obamacare Death Spiral Crash and Burn President Obama also promised repeatedly that Obamacare would reduce the cost of health insurance for families on average by $2,500 per year. But as with everything that government promises, Obamacare is having just the opposite effect, as another Obama pledge to the American people is proven false.

Avik Roy in a report for the Manhattan Institute estimated that the new Obamacare policies being offered on the Exchanges involved increased insurance premiums of 99 percent for men, and 62 percent for women. But that finding was more recently superseded by a new study by economists for the American Action Forum concluding that the Obamacare premium increases for individual policies on average amount to 260 percent for men and 193 percent.

Obamacare advocates are quick to point out that Obamacare includes tax credits to offset some of these premium increases. But for most people, those tax credits will offset only a fraction of these increases. Many people, singles making over $46,000 and families making only somewhat more, close to half the country at least, will not be eligible for these credits at all. Even those just above poverty will not see all of the increases offset.

This is what people are facing who lose their coverage and turn to the Obamacare Exchanges to find a new plan. And this too was known and predicted by opponents of Obamacare from the beginning. It’s a no-brainer that all the “free” benefits mandated by Obamacare were going to increase the cost of health insurance premiums.

Then there are the Obamacare regulatory requirements of “guaranteed issue” and “community rating.” Those requirements mean that no matter how sick and costly a new applicant for health insurance is when he first shows up, the health insurance company must issue a new policy to them covering everything at standard rates.

That is like requiring fire insurance to issue new homeowner policies to those whose first call comes when their houses are already on fire. The insurer must cover them and can charge no more than the standard rates that apply to everyone else. Of course, those standard rates must soar to ensure that the insurance company will have enough money to pay for an insurance pool covering all burnt down houses, because as the standard rates explode, no one is going to buy fire insurance until their house catches fire.

Those very guaranteed issue and community rating requirements will further contribute to the final crash and burn of the death spiral. When people see the costs of the new replacement Obamacare insurance, healthy and low cost customers are going to react the same way that George Schwab of North Carolina did when interviewed by NBC News. He liked his insurance plan from Blue Cross Blue Shield, which insured him and his wife for $228 a month. But his plan was recently cancelled (Obama did not like it). The insurance company offered him a “comparable” plan costing $1,208 a month, with an annual deductible soaring to $5,500 a year. The best alternative he could find on the Exchange charged a deductible of $948 a month, more than four times what his previous plan cost. He told NBC, “I’m sitting here looking at this, thinking we ought to just pay the fine and just get insurance when we’re sick.”

You can bet, though, that everyone who is sick with costly illnesses like cancer, heart disease, or diabetes will pay to get the insurance. Just like everyone whose house catches fire would analogously sign up immediately for fire insurance.

This problem is made even worse by the difficulties of working with the online Exchanges. Those who are healthy and low cost and just checking out prices will be quickly discouraged by the dysfunctional Obamacare website. But those who are sick with costly illnesses will persevere (as if their lives depended on it, which they may) until they succeed in getting coverage.

Moreover, as John Goodman, president of the National Center for Policy Analysis, points out in his highly insightful health policy blog, waves of the sickest and most costly are now swamping the insurance offered on the Exchanges. That is because state and federal High Risk Pools formerly serving these sickest and most costly are officially closing now, expecting Obamacare to pick them up. Moreover, government and private employers are in the process of dumping retirees they formerly covered on the Obamacare Exchanges as well. Sick and costly employees sticking with their current employers only for the health coverage because they would have costly pre-existing conditions for any new insurer are also in the process of leaving for new opportunities because they are assured of new coverage under Obamacare.

Even worse, the soaring premiums on the Obamacare Exchanges were calculated by health insurers on the assumption that the individual and employer mandates would succeed in forcing everyone to buy health insurance, the healthy and low cost as well as the sick and high cost. But with 93 million Americans, more than half of everyone with health insurance pre-Obamacare, losing their health coverage under Obamacare, and facing the incentives described above, the covered health insurance pool will not come remotely close to covering everyone, with the healthy, younger, and low cost being exactly the ones to drop out, and evade the mandates.

The pool the insurers end up covering, then, will be a lot more like the pool of all burnt down houses for fire insurers discussed above. The premiums the insurers receive from this adversely shrunken pool will not remotely cover the costs of that pool. Hence they will be facing bankruptcy next year, absent another taxpayer bailout of hundreds of billions. So the choice will be that, or socialized medicine, including the government death panels we see in every other country weighed down by this “enlightened” last century albatross.